Financial Rewards of International Operations Comes With Potential Employment Costs

In the past 10 years, U.S. employers have cut hundreds of thousands of jobs in the United States while adding millions of jobs overseas.

While many employers move jobs overseas to cut costs, other employers have added foreign employees in an effort to create an international presence or to get a toehold in another market. Other employers may find that they have inherited foreign employees through a merger or acquisition of another business. Regardless, more employers are doing business in other countries, requiring them to become familiar with foreign employment laws and practices.

American employers may be surprised to learn that many commonly accepted employment practices in the United States may be culturally unacceptable or even illegal abroad. The hiring and firing of employees at will, setting working hours, requiring employees to agree to noncompete agreements and even deciding whether to offer health care, vacation or maternity benefits are areas in which American employers enjoy a great deal of latitude, with relatively little government restriction or regulation. In none of these areas, however, can an employer assume that U.S. practices can be freely transferred to another country.

Let's take a look at a hypothetical, small map-making company based in Longmont, Colorado, as an example. The company, ABC Maps, recently bought a rival company, and in doing so, inherited a handful of employees spread throughout central Europe, Mexico and China.

As part of its acquisition, ABC Maps decides it wants to cut a few foreign employees in Mexico and Romania where it is losing money and increase its workforce in Albania, Bulgaria and China where business is booming.

To start, ABC Maps wants to protect its intellectual property by asking the remaining foreign employees to execute noncompete agreements and wants to standardize its employment policies worldwide so that the benefits, hours and policies offered its foreign employees match those of its U.S. employees.

Let's start with the planned layoffs of the unproductive or unnecessary employees. Outside of the United States, the concept of "at-will" employment is virtually unknown. That means that an employer who employs workers abroad may not be able to simply fire its few foreign workers because profits are down or the employees are unproductive.

Unlike in the United States, other countries may require employers to provide notice to local authorities or the national government, trade unions or local work councils that an employee is to be laid off. Some countries, such as Bulgaria, Romania, Albania, Mexico or China only permit discharge for cause and require varying amounts of severance for employee terminations.

Before ABC Maps can layoff or fire any employees, it not only needs to understand the employment laws of each country in which it employs workers, but also it needs to know what each of its employment contracts with its individual employees requires: employment contracts.

That's right, in each of the countries in which ABC Maps employs foreign workers, the laws require that the terms of employment be placed in a written employment contract, at the beginning of the employment relationship, and there are often costly penalties for not doing so.

And before ABC Maps can attempt to enforce any noncompete agreements it might have with departing employees, it needs to check that such agreements are even permitted. Where they are permitted, there is usually a requirement that significant "consideration" be paid to the employee for agreeing to the post-employment restriction.

Unlike the United States, where most states permit noncompete agreements in exchange for employment, this is not the case in much of the rest of the world. In Albania, for example, an enforceable noncompete agreement requires that the employer pay the departing employee 75 percent of his or her wage throughout the restricted period, in addition to other contractual requirements. In China, noncompete agreements are generally limited to senior managers and technicians and "reasonable compensation" must be paid to the former employee during the restricted period.

And what about ABC Maps' plans to standardize benefits and work schedules among its employees worldwide? Outside of the United States, many countries regulate the minimum length of vacation or maternity leave that must be provided, and often such leave must be paid.

Employees who are not able to work for a period of time because of illness or disability may have job protections not provided for by U.S. law, and although many countries outside of the United States provide nationalized health care, employers may still be required to contribute to health and welfare funds on behalf of their employees.

In many countries, the length of the workday or workweek may also be regulated, limiting the number of hours an employee might work. In Romania, employees are limited to a maximum of 48 hours of work per week.

While the rewards for doing business abroad are clear, there are plenty of pitfalls for the unwary employer.